Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered.
Question:
Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system.
Year..........System I............System II
0...............$(120,000)........$(120,000)
1.....................-......................76,628
2.....................162,708..........76,628
The company's cost of capital is 10 percent.
Required:
1. Compute the NPV and the IRR for each investment.
2. Show that the project with the larger NPV is the correct choice for the company.
Cost Of CapitalCost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Step by Step Answer:
Cornerstones of Cost Management
ISBN: 978-1111824402
2nd edition
Authors: Don R. Hansen, Maryanne M. Mowen